Feb 24, 2010

Picking up the pieces

The textile industry faces a serious crisis that should be addressed on a priority basis

By Ahmed Ali Khan and Shehryar Butt

The textile industry is the backbone of our manufacturing sector, bringing in the much-needed foreign exchange in the form of export revenues to the tune of $17.8 billion. This industry employs hundreds of thousands of people. For years, this industry has progressed, developing itself into Pakistan’s industrial lifeline — second only to agriculture for the economy. The role of the previous governments (with a few exceptions) has been positive in transforming the textile industry into what it was uptil a few years ago — a competitive global player.

However, the industry is in deep crises today. With constant power outages, sometimes as frequently as every alternate hour and tariffs increasing every few months, most factories switched to diesel or gas generators in the hope of obtaining uninterrupted power supply. But, again, fate dealt them another blow as diesel prices skyrocketed, making independent power production unfeasible.

On the other hand, loadshedding was introduced to the industrial consumers of gas. Now most factories were forced to adjust their production hours with that of the loadshedding. This left them in a position where it was impossible to complete their orders on time. Numerous orders were cancelled as a result and exporters were forced to foot bills they could not afford.

Simultaneously, the condition of cotton crop has deteriorated during the last several years, from an exporter of the highest quality cotton we have become an importer. This can be attributed basically to a complete lack in development and improvement of cotton seed. The artificial selection and genetic improvement procedures seem to have been abandoned thirty years ago, leaving the crop susceptible to virus and lower yields caused by generations of inbreeding. Neither the government nor Aptma has established any form of research centre to get rid of this problem.

As if this blow was not hard enough, inflation left the State Bank with no choice but to increase interest rates to the point where loans, the main source of working capital, became almost suicidal, severely impinging cash flow and blowing away any plans of expansion.

The government at the same time introduced a minimum wage of Rs6,000. This led to an increase in the wage bill and thus an overall increase in the cost of production. The unstable exchange rates added to the problems of the crisis-hit industry.

This vital industry, which is responsible for 60 percent of our exports, was faced with heavy competition from emerging markets, such as Vietnam, while already competing with established world players like China and India. Bangladesh, on the other hand, without growing a single cotton bale, was giving us a tough time.

Being given preferential treatment under the auspices of the WTO, the country was given an edge over us. Pakistani exporters suffered further at the hands of anti-dumping laws in Europe and North America. No effort was made by the government to stop this discrimination or even register a case with the countries concerned.

One of the reasons why our textile industry has failed to establish itself as a high-end exporter of textile products is lack of investment in modernising the industry due to producers who were unwilling to improve. Low-end products do not give nearly as much return and face far more competition from new producers, reducing profit margins and revenue.

Research and development, which plays a pivotal role in the success of any industry, was never seriously paid attention to with producers happy to make a quick buck rather than view the larger picture. This lack of foresight has led to the loss of major markets with huge potential returns, which could have easily been acquired.

The textile industry in Pakistan is far from being an infant industry. It is now at a stage where it should be dynamic and competitive, producing high-quality products where it can outperform new competitors rather than stay at the low-end battling constantly in price wars with emerging producers. Unfortunately, however, it is stuck where it was more than a decade ago, refusing to improve or better itself, choosing instead to blame the government and other conditions for all its problems, a condition that afflicts much of our nation and is probably the largest impediment to progress.

It would be wrong, however, not to mention the success of the denim sector. It is the only sector in the textile industry that continues to improve itself and is, therefore, in a position to compete with any country, producing top quality goods at competitive prices. It is a clear example of what the textile industry, as a whole, could and should have been today. And it still can.

Therefore, there is light at the end of the tunnel. Exchange rate depreciation has made Pakistani products far more price-competitive, a major factor during any downturn, let alone a recession of this magnitude. Secondly, and perhaps even more importantly, after several textile units unable to cope with the current crisis have shut down, both temporary and permanent.

The government has at last realised that something must be done. For the first time in our history a comprehensive textile policy was released for 2009-14, promising low interest loans, a cut in taxation, and most importantly, no power outages. Yet to be fully implemented, this policy provides a glimmer of hope for the revival of textile industry in Pakistan.